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There was a time when a soaring stock market and zero percent interest rates, leading to soaring values of existing fixed-income investments, would have been enough to pull state and local government public employee pension funds out of the hole, at least by the (in my view false) measures used. Today, however, that hole is so deep that for all state and local government pension funds in the U.S. combined, according to my estimate, later-born generations face a $3.5 trillion debt to pay for public employee pensions as of FY 2016, or 21.8% of the personal income of everyone in the United States. Over and above any pension benefits that are being earned today. That exceeded the $3 trillion in formal state and local government bonded debt at the time.

More and more, various organizations are coming up with estimates of this combined debt burden, trying to predict which states and localities will be headed for bankruptcy, public service insolvency, or both. Having pioneered this way of thinking nearly a decade ago with the first “Sold Out Future” ranking, let’s continue the analysis with regard to public employee pensions.

Debt and infrastructure investment are supposed to go together. State and local governments have operating budgets and capital budgets, and constitutions and charters that say that while money may be borrowed for capital improvements, the operating budget is supposed to be balanced.

During the Generation Greed era, however, that isn’t what has happened. For the U.S. as a whole, total state and local government debt increased from 14.1% of U.S. residents’ personal income in FY 1981 to 22.7% in FY 2010, even as infrastructure investment diminished. This was a matter of generational values, not just a matter of government. One finds the same trend in business – more debt, less investment – during the same years, with the short term high of having more taken out relative to the amount put in contributing to perpetual political incumbency and sky-high executive pay. A generation, it seems, has decided to cash in the United States of America and spend to proceeds before it passes away.

Four years ago I did an analysis of state and local government finance data from the U.S. Census Bureau, for all states and for New York City and the Rest of New York State separately, with data over 40 years, to determine the extent to which each state’s future had been sold out due to state and local government debts, inadequate past infrastructure investment, and underfunded and retroactively enriched public employee pensions. Having a sold out future means having a future of higher state and local government taxes, diminished public services, and lower pay and benefits for newly hired public employees, and that is what many parts of the United States – most, in reality – are facing.

Over the past month I have re-created that analysis with data through FY 2016, the latest available, rather than just FY 2012, while adding some details. This post and the next three will show what I found.

Coming into office eight years ago, Connecticut Governor Dannel Malloy faced a fiscal disaster, following decades of shortsighted but popular policies that robbed the future. He raised some taxes and cut some services, but mostly kicked the can with borrowing and deferred pension contributions shifted further into the future, and pursued an agenda based on traditional Democratic tribal issues such as guns, gays, immigration and marijuana. (Republican Generation Greed politicians use the same misdirection). Since the majority of Connecticut residents don’t follow state and local government closely, however, Malloy received all the blame for all that had gone before. As a result he was barely re-elected to a second term, and is leaving office as one of the most despised politicians in the country.

Coming into office today, Connecticut Governor-elect Ned Lamont also faces a fiscal disaster, this time at the peak of an economic cycle rather than in a deep recession. A fiscal disaster that is certain to get even worse when the next recession hits and the stock market corrects to something like fair value. At some point he will either have to raise taxes, cut services, and perhaps tell his public employee union supporters that they have to give up more to get back in solidarity with their fellow state residents. And be blamed for all of the above. Or hope that state residents have gotten used to how bad things are under Malloy, kick the can a little further, and try to sneak into a second term before the additional bills come due. And then leave office as despised as Malloy and former New Jersey Governor Christie.

New York City and city residents are going to pay a high price for the 14-month L-train (Canarsie line tunnel) shutdown. With limited and already crowded alternatives, commuting will become hellish for hundreds of thousand of people, including those on other subway lines that will be impacted indirectly. Some will move to other neighborhoods, driving up rents and creating housing shortages there. Others might give up and leave the city altogether, at a moment when the availability of workers, particularly young educated or otherwise talented workers, has become the critical economic development asset. Businesses and tax revenues will follow.

Faced with this reality, there were plenty of really bad ideas considered before the 14-month shutdown was approved. Some wanted to rehab one track at a time to continue to provide very limited service, increasing the cost and time required for the project far in excess of any benefit provided. Others demanded a new tunnel be built instead, at a cost of $billions, to temporarily maintain service while the existing tunnels were rebuilt. But most subway riders have a limited sense of entitlement and a realistic sense of what the city and state can afford, given other priorities that are also demanding more and more money in exchange for decreased public services, and have accepted the L train shutdown, bad as it will be.

Then there is the replacement of the BQE viaduct under Brooklyn Heights, another necessary but disruptive project. The plan for this seems to have been developed on a different planet. Planet placard.

It showed things getting better, but that is not a surprise given the economy has been up. I prefer to look at comparable years, at the same point in the economic cycle. Unfortunately, single-year data for 2007 was not available for NYC on American Factfinder, but I was able to get three-year data for 2006 to 2008 as a proxy. It shows New Yorkers are working more than they had been a decade ago, but they are paid somewhat less. Poverty is down and household income is up, however, because they are packing together, with more workers per household.

Since stock prices had fallen for a few days before a partial recovery on Friday, some might think they are now low. They are not low. They are sky-high, having been inflated to bubble levels by a decade of near zero percent interest rates.

The Federal Reserve has been trying to normalize interest rates, and as a result the 10-Year U.S. Treasury Bond now yields a still-low but closer-to-typical 3.16%. When interest rates were rock bottom, there was a lot of talk about the “Fed Model,” which holds that stocks are fairly valued when the dividend yield – the actual cash return on stocks – equals the yield on a 10-year U.S. Treasury Bond. Well, the dividend yield on the S&P 500, after the recent price declines, was 1.92%. To get that dividend yield up to 3.16% to match the current U.S. Treasury Bond yield, the stock market would have to fall by 39.2% from current levels. But the historic average dividend yield is much higher at 4.35%. To get the dividend yield that high stock prices would have to fall 55.9%.